Are You Ready For The Rise In Auto-Enrolment Contributions?

Automatic-enrolment pensions were introduced by the coalition government in 2012 to plug the retirement income gap.

And the scheme’s been very successful — over 8.8 million employees have now been enrolled into a workplace pension by 850,000 employers. That’s roughly 90% of eligible workers.

It remains one of the most tax-efficient ways of saving towards retirement, partially mitigates the declining value of the state pension and allows employers to offer workers more security in challenging times.

Major changes to the scheme are coming very soon, with employer and employee contributions set to rise this April and in April 2019.

Rising contributions

For a typical auto-enrolment scheme the increases are as follows (although firms can deviate from this and decide to increase their contributions):

The recent auto-enrolment review also recommended removing the lower earnings limit and reducing the age threshold for eligible workers from 22 to 18 — but neither of these further changes will be implemented until the mid-2020s.

Employees

The increased contributions probably won’t make a massive difference to your disposable income — they’ll be offset by increases in the national minimum wage and personal tax allowance.

But the changes could still significantly improve your financial position during retirement — if you earn the national average wage and have been saving under auto-enrolment since 2012, your pension could triple from £30,000 to £101,000.

And it’s worth noting that today’s workers will have to wait longer to receive their state pensions which, thanks to the single-tier structure, will be worth less.